The Centers for Medicare & Medicaid Services (CMS) has proposed significant rule changes that could potentially cost insurers billions of dollars as CMS takes steps to recover what it contends are improper payments made to Medicare Advantage Organizations (MAOs).

In a statement, CMS states that, “the proposed rule would strengthen CMS’s ability to return dollars to the Medicare Trust Funds as a result of these audits. If finalized, the proposed changes would result in an estimated $4.5 billion in savings to the Medicare Trust Funds over a ten-year period, largely from the recovery of improper payments to Medicare Advantage plans through contract-level Risk Adjustment Data Validation audits.”

CMS conducts Risk Adjustment Data Validation (RADV) audits to confirm that diagnoses submitted by MAOs for risk-adjusted payments are supported by medical record documentation. The methodology, dating back to 2012, calculates a payment error rate from a sampling of enrollees from each plan.  The error rate is then extrapolated across the entire plan, after which CMS, in theory at least, recovers improper payments based on the audits.

The method was applied to MAO audits conducted in 2011 through 2013, but the audits were never finalized nor overpayments collected. CMS now proposes to collect those overpayments, going forward AND retroactively, potentially costing the plans millions of dollars. CMS also proposes to throw out its fee-for-service adjuster, which had been used to ensure that Medicare and MAO plans received “actuarially equivalent” payments.

CMS notes in the proposed rule:

The public has a substantial interest in the recoupment of millions of dollars of public money improperly paid to private insurers. The public also has a significant interest in providing incentives for those insurers to claim only proper payments in the future, which would be promoted by the recoupment of funds improperly paid in the past. Given the amount of improper payments identified under the MA program (estimated to be $14.35 billion in FY 2017, the $650 million in recovered improper payments represents, if this policy was finalized, 3 years improper payment for 30 plans), the interest in determining an accurate recovery amount for each audited MA plan, and the importance of protecting the overall integrity of the program, we believe that it is in the public interest for CMS to apply the RADV payment error methodology or methodologies adopted through this rulemaking to payment year 2011 and all subsequent years.

Based on the proposed rule changes, MAOs should brace themselves for stepped-up audits and greater efforts toward recoupment of overpayments, both going forward and retroactively. The text of the proposed rule changes are available HERE. CMS is accepting comments on the proposed rule changes through December 31, 2018.

The FisherBroyles Pharmacy and Health Care Law team is pleased to keep you updated on events of interest to those in the healthcare and pharmaceutical industries. Questions may be directed to any of the following attorneys:

Brian Dickerson, FisherBroyles Partner
Brian E. Dickerson

Anthony Calamunci, FisherBroyles Partner
Anthony Calamunci

Nicole Waid, FisherBroyles Partner
Nicole Hughes Waid

Amy Butler, FisherBroyles Partner
Amy Butler